A firm produces consumer goods and adds some to inventory in the third quarter. In the fourth quarter, the firm sells the goods at a retail outlet. As a result of these actions, what happens to the consumption and investment components of GDP in the fourth quarter?
A) investment decreases, consumption does not change
B) investment increases, consumption decreases
C) investment decreases, consumption increases
D) investment does not change, consumption increases

Question

Quizplus · Accepted Answer

When goods are added to inventory, it is considered an investment in GDP accounting. When these goods are later sold, the investment decreases (as the inventory is reduced) and consumption increases (as the goods are purchased by consumers).

A Firm Produces Consumer Goods and Adds Some to Inventory